why Myspace is giving Project Playlist the heave, and Facebook isn’t

We first got word from MySpace users that their Playlist widgets are simply vanishing from their MySpace profiles earlier today. When we contacted MySpace they confirmed the ban, noting that they have received infringement notices from “major music companies”

The single most important part of the back story is that Playlist.com, aka Project Playlist, is in licensing negotiations with the labels. Playlist gets a lot of traffic via Myspace. Traffic is life itself for ad-sponsored sites. The labels can put a lot of pressure on Playlist by killing its traffic.

As far as Playlist is concerned, the legality of its widgets on Myspace is pretty great. Playlist doesn’t host the music files, just point to third parties (modulo the outstanding need to explore the DMCA and define the limits on linking to infringing parties). When Playlist is used via a widget embeded in a Myspace page, Playlist doesn’t even host the linking pages. There’s a distant chance that Myspace could lose in court. There’s zero chance that Playlist will.

It’s not likely that anybody’s liable for those links, but the labels are bruteforcing that issue in litigation and forcing link sites to spend a shitload of money exploring the DMCA with them. Another day, another fishing expedition, another $bundle in legal fees. That’s why Mixwit just said fuck it and shut down. If Playlist is in negotiations to license, it means that they prefer to get out of that game. And if the labels want to go balls to the wall on this Myspace jazz, it’s because there’s some contractual weirdness to explore.

Myspace has no incentive to have a confrontation with the labels. They’re partners with the labels in Myspace Music. The staff lawyers handling label complaints probably used to work for labels, and probably will again. They run into the nice RIAA fellows at the Starbucks. They’re paying crippling fees to license music, and they can’t compete with Playlist.com if it’s not doing the same.

And that gets to the real problem, which is the same as with webcasting. Linking to free-range MP3s under the DMCA safe harbors, like webcasting under the compulsory license, is an alternative to negotiation. Not having to negotiate is a negotiating advantage, giving sites like Pandora and Playlist.com leverage against the labels. The labels will get better royalty rates if they keep free range MP3s from competing with their own offerings.

What’s happening in the negotiations might be that Playlist.com is blocking on the right to mix free-range MP3s in with licensed streams. They might be trying to mix in non-interactive webcasting (aka CARP) plays, which pay lower rates than on-demand. Or maybe they’re just taking their time getting to yes because free range MP3s give them an alternative in the meantime.

And even worse, Myspace might be using widgetized streams from Playlist to supplement their own musical abilities. The question would be who pays for the license — Myspace or Playlist? And at whose royalty rate? In a way it’s good for Myspace to have Playlist taking the heat, though I suspect they actually –want– to cover the royalties themselves because it supports their current music strategy.

Myspace doesn’t have an incentive to play this all out. They benefit more by avoiding a fight with their partner and weakening their competitor.

Before going to the tape and seeing what Myspace has to say about all this, there’s one more crucial piece of ground. It’s Myspace hosting the links, not Playlist, so if anybody is infringing, **it’s Myspace** and not Playlist. Notice how carefully parsed Myspace’s statement is — they don’t say who or what is doing what if anything is happening.

MySpace has received notices of infringement about Project Playlist at different times from several of the major music companies currently suing Project Playlist. Per our policy of taking very seriously the requests of rights holders to block access to third party sites that are believed to be infringing, we have evaluated the requests of the major music companies and determined that it is in our best interest not to allow Project Playlist widgets on MySpace, and effective immediately, we will no longer be allowing these widgets within the MySpace platform.

Great post, Lucas. It’s well known playlist has been in negotiations with the labels for a while and this obvious negotiation tactic with a shady anticompetitive overtone.

There’s one issue that you didn’t mention though. Playlist heavily caches content. It’s the only way you can operate a playlisting service at any scale reliably. We never cached at Mixwit, and we payed for with user attrition.

That said, the issue of caching in this way has never been sorted out in court. The closet I know of is the Google vs Perfect 10 case which laid down the framework for how google image search works. I wouldn’t say it’s slam dunk on either side if it went to court.

Unfortunately for playlist, myspace is their achilles heal. I’m not expert on their numbers, but this seems like it could be nuclear bomb on their traffic.